Studies On Profitability Of Midsize Listed Commercial Bank

Profitability is a core element of commercial banks’competitiveness, as well as a significant indicator to weigh developmental capacity and operation state of a commercial bank, which can be shown through the current income level and the lasting and growing profit in future. Profitability is a crucial factor for commercial banks to survive and develop, which decides whether the bank stay an invincible position in the fierce competition. Therefore, the study on profitability is always the focus in the study of finance, and it has the important theoretical and practical significance for each listed commercial bank to survive and develop, as also has the significance for China banking industry to enhance the overall strength.Based on China’s banking industry development state and summarizing the achievements in the field of theoretic research at home and abroad, this paper illuminated the basic concept and contents about profitability of commercial bank from the industrial organization theory, scope economic theory, financial development and economic growth theory and capital structure theory. Then, the paper analysed the influence factors of profitability of China’s commercial bank from internal and external. On that basis, this paper thought that the profitability of commercial bank not only mean the ability of profit, but also include development potential, innovation ability and the ability to withstand risks, and this paper design a set of scientific profitability evaluation indexes of commercial banks. Eleven indicators are selected, which are:return on assets, net Interest spread, the ratio of costs to revenues, earning per share, net interest margin, non-performing loans ratio, capital adequacy ratio, liquidity ratios, non-interest ratio, the ratio of net profit growth, total assets growth rate.Taking seven midsize listed commercial banks(include China Merchants Bank, Shanghai Pudong Development Bank, China Minsheng Bank, China Citic Bank, Industrial Bank, China Everbright Bank, HuaXia Bank) as research object and selecting2006-2010financial data as the samples, this paper analysed the current profitability about the seven banks and evaluated the profitability with factor analysis. The conclusion showed that, China Merchants Bank’s comprehensive profitability ranked first, followed by Industrial Bank, China Minsheng Bank, China Citic Bank, Shanghai Pudong Development Bank, China Everbright Bank and HuaXia Bank. Besides, China Merchants Bank showed the greater market efficiency ability, risk control ability and innovation ability, but the earnings-generating capacity and the development capability need to be raised. Shanghai Pudong Development Bank had strong earnings-generating capacity and development capability but weak innovation ability. Although there is no outstanding performance and lacking of innovation ability, but China Citic Bank’s market efficiency ability, risk control ability and development capability performed well. China Minsheng Bank had an excellent performance in innovation ability, whose innovation ability and risk control ability had been in the forefront in these banks but in the forefront backward, which should be improved. China Everbright Bank’s earnings-generating capacity standed third, but its market efficiency ability and risk control ability performed not well, as well as development capability and innovation ability. HuaXia Bank had no special outstanding performance in these abilities, especially market efficiency ability, earnings-generating capacity and risk control ability needed to be improved urgently. Industrial Bank’s earnings-generating capacity ranked first but other abilities performs not outstanding and some measures should be taken to make it better.This paper studied the restraining factors of commercial banks’profitability from monetary policy, asset size, asset quality, operations and management capacity, business diversity level by normative analysis. The conclusion thought that expansionary monetary policy can increase profits of banks while tight-money policy may had a negative effect on profiting; the expansion of the banks assets can bring moderate economies of scale and economies of scope, which can strengthen profitability and competitive, but the excessive broaden of the bank asset also had negative effects to profitability. In terms of asset quality, the high non-performing loans ratio will have an adverse effect on profitability. The business diversity level had a positive effect on profitability because the higher the non-performing loans ratio was, the better the impact resistance and the more stable the profitability was. Conversely, a simple business model will be bad for profiting of the commercial banks. Through an empirical analysis on the profitability of commercial banks, this paper put forward corresponding measures:in terms of operation efficiency, commercial banks should perfect governance structure constantly and strengthen the cost control and improve management efficiency; in terms of risk prevention and control, commercial banks should improve assets quality and capital adequacy ratios as well as strengthen the liquidity risk management; in terms of financial innovation ability, the business and the products should be expand and innovate; in terms of bank asset, commercial banks should expand the scale to obtain the scale-benefit.